Big investment firm
or small boutique?
Alexandra Lebenthal
and Liz Claman
discuss the options.
(Photographed
at the Museum
of American
Finance.)

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Congratulations! You’ve just crossed a threshold, and can claim a net worth of $10 or $15 million worth of liquid assets. But before you celebrate, you may find yourself worse off when it comes to obtaining advice about your finances than if you just had a few hundred thousand dollars to invest. While your needs have become more complex than the brokers and financial advisors who cater to the “mass affluent” are able to handle as readily as they once may have, you’re not rich enough—yet—to command the full attention of the private bankers or advisors to the ultra-wealthy (defined as assets north of $20 million). Indeed, you fall into a category that Alexandra Lebenthal, chief executive of Lebenthal & Co., refers to as the “Lost Affluent,” and that others have referred to as “single-digit millionaires”—those families that even members of the financial services community admit aren’t being adequately served.

We sat down to discuss this conundrum with Lebenthal, whose company serves as a kind of personal chief financial officer for at least some of these families, and Emmy Award winning Fox Business Network anchor Liz Claman.

What are the problems these “lost affluent” families and individuals have to deal with?
Alexandra LebenthAL: They have needs that aren’t really being met by any institutions. Those needs aren’t just investment needs, but cover a whole range of services around finance: bill paying, preparation, insurance services—basically, the job of keeping track of everything in someone’s life that has a dollar sign in front of it. I call these people “lost” not only because there aren’t firms there to handle people with this amount of assets, but also because they tend to become lost themselves. They don’t have time to deal with these things, so tasks slip through the cracks, creating other problems for them.Liz Claman: I have seen this happen among people I’ve talked to professionally, but also in my own experience. Many financial planners seemed to care only about what kind of return I wanted. I think that is extraordinarily myopic. There are at least a dozen other metrics that matter—lifestyle, legacy planning, and many more. This makes planning more complicated for single-digit millionaires because they are different. They require more customized advice.AL: To be a little bit cynical, it’s because [working with this group] doesn’t fit the business model of what the big brokerage firms are doing. They want to be selling products that will generate portfolio turnover or a fee, not providing services that don’t produce an income for their firm.LC: Also, many of these people are lazy. At first, I was a client at one of those bigger brokerage firms, until I realized that whatever an advisor was selling me, he was selling to 3,800 other clients.

How did you react, Liz?
LC: I moved to a boutique advisor. At our first meeting with him, he asked us questions about our finances that we hadn’t even thought about. He looked at our geography, age, interests, what we thought about our children’s education. He asked about our lifestyle goals, which sounds kind of touchy-feely. But I had never thought about the need to make a financial plan for a big bar or bat mitzvah celebration.AL: There has been such an increase in the number of financial advisors who have left the big firms and gone independent or joined boutiques. It’s very timely. When people stopped looking at the big institutions as offering sanctuary from financial storms [during the credit crisis], they became more comfortable with the idea of working with these smaller boutiques. And many of them are better able to work with these wealthy, but not ultrawealthy, clients.LC: At a big firm, even a big client can get lost in the shuffle. I just talked to a CEO who read his statement and discovered he had $50,000 invested in a bond that he would never have bought. Weeks and 19 phone calls later, he still has no answer as to how this happened.AL: The number of times that someone has come to see us with a bond portfolio that has had crap put in there—it makes me mad and sad that this has been done.

What can this “lost generation” do to find its footing? And will there be a trade-off?
LC: The newer millionaires need to be prepared to search for someone who is thinking about what he or she can do for their client, and not what kind of fees the client will generate for them. You may pay a little bit more for the service—but consider the alternative! One size does not fit all.AL: There certainly are trade-offs. At a larger firm, the technology and the bells and whistles will be better. You may get access to more products that some people will want or need. It’s not just the difference in the fees, but what you get for those fees.

How do you find the right financial advisor?
AL: The first thing people should do is make a list of what they are looking for in an advisor and then start a search, as if they were hiring someone to work for them. Something that many people, especially women, tend to forget is if you don’t like the person or feel that you can work well together in pursuit of your goals, don’t start a relationship with him or her. People should be conscious that there is a “right” fit for them. [One consideration] is whether the advisor operates as a fiduciary, in other words, if he has a legal obligation to put his client ahead of himself. To me, this should be automatic.LC: I asked colleagues, people I felt had the same goals and ambitions that I did and were in a similar financial bracket. A great place to start is the smaller, specialized boutiques. People don’t shy away from buying custom rugs and custom couches instead of going to Pottery Barn or Crate and Barrel, so why not invest the same amount of time finding a custom solution to your financial advice needs?

It sounds as if the onus falls on the client to do a lot of the due diligence when it comes to finding the right advisor. With that in mind, is the outlook improving for the “lost affluent” demographic?
LC: I would simply say that if you don’t take control of your finances, and that means picking the right kind of person to manage them and who will give you the level of detailed attention you need, then you get what you deserve.AL: I think we have been going through a big shift [in the industry] since the financial crisis. I think the new atmosphere is lending itself to better serving “lost affluents.” Once they become aware, there is a solution, a custom fit for them just as much as there is for their even wealthier peers.

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